Economic Perspectives, the Programme and the
Permanent Arms
Economy.

Written:1972;Source:
David Yaffe:
'Economic Perspectives, the Programme and the Permanent Arms Economy.'
,
IS Internal Bulletin, January 1973.Transcription/Markup:
Steve Palmer Copyleft: This
document is in the public domain. Notes: It goes without
saying that the author's position has evolved and developed
considerably since this article was first written. Mike Kidron's
response 'For Every Prince there is a Princess'
can be found here.
See also Kidron's own 1977 rejection
of the theory of the Permanent Arms Economy.

The National. Committee has presented for discussion at
conference a new draft programme. If passed 'it will constitute
the programmatic basis of IS' and of the revolutionary party if
IS is 'the developing nucleus of the revolutionary party'(p2).
Therefore it is our duty to critically examine whether the
programme presented fulfils the tasks demanded of a programme
of a revolutionary party.

The programme neither points to nor explains the dominant
tendencies of capitalism in the present period. It, therefore,
does not and cannot offer a programme of action and demands
that bridge the gap between the immediate problems facing the
working class and the socialist programme of revolution.
Although 'it is not enough to have correct ideas' (p3) it is
certainly necessary. It is precisely the rejection of the
Marxian theory of crisis and the dogmatic insistence in holding
to the theory of the Permanent Arms Economy (PAE}, now in its
third version, that prevents the economic sections of the
programme from offering any perspectives for the working class
movement. It is this theoretical void in the programme that
gives it its academic and confused character.

What are the dominant tendencies of the present period? They
are the growing economic role of the State in capitalist
countries, increasing centralisation and concentration of
capital, growing unemployment, rising prices, increasing
taxation and an enormous increase of trade end inter-country
investment between advanced industrial countries.
This
latter point is the central feature of imperialism today, and yet it does not get a mention.
Neither does the attempt of the capitalist countries to break
into the East-European markets (and China) so that the
significance of the Ostpolitik and the developments in the
Soviet bloc in the recent period are not examined. All these
tendencies should have a central piece in the programme of s
revolutionary party, but one has to search, often in vain, for
the briefest mention of even the most important of them. Space
permits us to examine only one of these tendencies; the growing
economic role of the State.

The growing economic role of the State in the economy is a
dominant feature of 'late' capitalism. In Britain, the Tory
government has been forced to increase State
expenditure
at a much faster rate than that planned by the Labour
government. The recent announcement of enormous State
expenditure plans for the nationalised industries should surely
have been explicable in terms of the analysis within the
programme. Had not U.C.S. and Rolls Royce already indicated
such tendencies? Were not similar subsidies becoming a
recurring feature in all capitalist economies, (shipbuilding)
coal, steel, aircraft industries etc)? Yet the programme offers
no analysis, but merely asserts:

'State capitalism is a partial negation of capitalism. Its
widespread development is a proof of the general crisis of
capitalism. So too is its indispensable economic role of of the
state in the developed monopoly capitalist countries.'
(G.11).

In another section the 'military-economic role of the State'
(G7) is a compensating factor to 'a long run tendency for the
rate of exploitation to rise and a long run tendency for the
average rate of profit to decline'. What this means only those
who state it can say.

The central questions remain unanswered and the central
facts of the present period are ignored. Why is the economic role of the State indispensable? What is the significance of
the immense growth in State expenditure and the reduction of
arms expenditure both as a percentage of G.N.P. and of State
expenditure? These questions were the starting-point of the
Schmiede/Yaffe article 'State Expenditure and the Marxian
Theory of Crisis' - a Marxist analysis of the general
tendencies that we now observe. We wrote then (August
1971):

'To maintain a state of high employment indefinitely …
the non-productive sector (State sector) must increase faster
than total production.'

and we argued that the contradictions of capitalism have
only a new expression:

'that continually the government will be 'forced' to
intervene in the economy to 'save' the private economy, and yet
the problems will continually get worse because of the
contradictory nature of this intervention.'

Inflation and stagnation were the expression of growing
state-induced non productive expenditure on the private market.
All this was explained in the article. Central to our whole
analysis was the stress on the need to raise the
productivity of labour and increase the mass of
profits.
Increases in arms expenditure or other non-productive
expenditure only reduces the mass of profits, being a drain on
surplus-value and hence exacerbate the tendency of the rate of
profit to fall (the opposite is asserted in the programme).
Precisely because of this, capitalist governments will attempt
to reduce them wherever possible. The figures for defence
expenditures for a number of countries confirm this point.

1952

1960

1968 ( % of GDP
(factor. cost)).

UK.

10.5

7.0

6.5

USA.

14.5

9.0

10.0

Japan.

-

-

- (negligible)

W.Germany

6.5

3.8

3.5

France.

8.0

6.4

4.5

In the case of social security payments (12.1% of public
expenditure in 1951, 18.1% in 1970 in Britain) this reduction
has not generally been possible. This is due to increasing
unemployment over the period.

The increase in unemployment and inflation certainly does
not have its explanation in a reduction of arms expenditure. To
understand the problem we have to realise that:

'the progressive tendency of the general rate of profit to
fall is … just an expression peculiar to the
capitalist mode of production of the progressive
development of the social productivity of labour', (Capital Vol
III, p.209)

As the productivity of labour increases, the number of men
employed by a given mass of means of production falls (more
crudely, men per machine) that is, the number of men per unit
of capital invested, falls. So that, unless investment
increases sufficiently, the result will he
unemployment
- the same amount of investment as before employs less men.
Consequently full employment requires a continual
increase and expansion of profitable production (an increasing
rate of accumulation). Unless the rate of exploitation, the
mass of profits produced per man continually increases, there
will be a slow-down in the rate of accumulation and therefore,
unemployment. The tendency of the rate of profit to fall is the
expression of this contradictory process. On the one hand there
is a reduction of the number of men working with a given amount
of capital as productivity increases. On the other hand there
is the requirement to employ as many men as possible at a
higher productivity of labour in order to obtain the maximum
mass of profits and hence maintain profitability. So long as
the productivity of labour can be increased sufficiently and at
the same time, production expand, there will be no
unemployment, But it becomes increasingly difficult to
progressively increase the productivity of labour, as we
explain in our article. The result is a slow-down in the
accumulation process and unemployment.

The State intervenes in the economy to take up the slack and
reduce unemployment. This can only be a temporary measure as
State expenditure is financed out of taxes and therefore out of
profits already produced and such expenditure makes continued
increases in the productivity of labour all the more
essential. The result of non-profitable State expenditure
is increasing taxation and inflation or rising prices. The
State increases the money supply, increases deficit financing,
and/or taxation (now about 42% of G.N.P. in Britain (44% in
1970) compared with about 31% in 1960) in order to finance its
immediate expenditure. The effect of all this on the private
market, as workers attempt to maintain their real wages and
capitalists increase profits, is higher prices, in spite of
unemployment and stagnation. Inflation con only be reduced by
an overall increase in the productivity of labour and expansion
of profitable production. Otherwise, as State
expenditure increases in the: attempt to reduce unemployment
and create a 'climate' for further 'private: investment, the
result will be an even faster rate of inflation.

Having understood these central points it is clear why the
State is now 'forced' to increase: nationalised industry
spending in Britain. Most nationalised industries produce
products that are the basic inputs for all industries. The
cheaper these can be sold (the more productive those industries
are) the less the costs (and higher the profits) of the main
big users (usually large corporations). By rationalising these
industries the State redistributes resources in the direction
of the large corporations and in this way helps to increase the
profitability of such Corporations. The pricing policies of the
nationalised industries make sure that it is the big users that
benefit, not the ordinary consumer. In the process of
rationalisation, the state attempts to give directly
a
lead to private industry. The enormous reduction of the work
force over recent years in all nationalised industries, in
spite of the large expenditures involved, is the indication of
this. Throwing 50,000 men out of work will be the result of the
enormous expenditure plans in the steel industry (£3,000
mill.) and similar reductions are considered necessary in the
coal industry. The working class is made to pay for the
problems inherent in capitalist production. The Industrial
Relations Act, income policies, are the 'political' counterpart
of this process. A 'disciplined' work-force and cooperative
Trade Unions are considered essential if the rationalisation
necessary for capitalism's survival are to he carried through.
Also, many of the projects take years to carry out and
'instability' can seriously jeopardise the result and the
ability to sell the products.

The merger movement, the concentration and centralisation of
capital (often beyond national boundaries) is another
expression of the imperative to raise the productivity of
labour and to maintain and increase the share of the mass of
profits produced. In Britain, the 100 largest manufacturing
enterprises in 1900 produced 15% of net output. By 1970 the
proportion had risen to 50%.

In such a context, on the basis of a Marxist analysis, the
relevant demands that follow logically from the analysis have
revolutionary implications. For example, 'work or full pay'
poses the questions; who should benefit from increases in the
productivity of labour? Why do such increases lead to
redundancies and not to on overall reduction in the time
necessary to work? This demand allows the alternative of
planned production for use to be raised (a point
hardly
discussed in the draft programme). In making clear the role of
the capitalist state the analysis combats illusions about the
Industrial Relations Act and incomes policies. The demand for
'Independence of the T.U's, from the State' is immediately seen
to be necessary. Price rises, clearly not due to workers
attempts to increase their wages but following from the attempt
of the capitalist state to maintain and preserve a system that
has long outlived, its stay, must be fought using independent
working-class organisations. The 'rising scale of wages
regulated by housewives and TU committees' becomes a central
demand. Such an analysis, in short, leads necessarily to a
programme of action that has as its mainstay a Marxist
understanding of present-day conditions.

Once again the PAE.

This version of the PAE differs from earlier ones in that a
reduction of arms expenditure causes a fall in the rate
of profit. (D. 10) and it is the reduction of arms expenditure
in the previous decade that is the cause of the
present
crisis. In the last draft programme, it will be remembered,
structural changes in the arms industry did not affect the
rate of profit and the crisis was flue to 'decreasing
effectiveness of arms expenditure'. That arms expenditure had
no direct effect on unemployment in the USA can be seen from
the following statistics. In 1945-8 defence spending in the USA
dropped from over $80,000 mill. to about $12,000 mill.
Throughout the period unemployment remained under 4% and
was3.0% in 1948. According to all versions of the PAE. there
should have been a crisis! In 1954-5 there was a sharp decline
in the rate of unemployment and the level of
defence
spending. In 1961-5 the unemployment rate fell from 6.7% in
1961 to 4.5% in 1965, or well in advance of the spurt in
defence spending, The PAE as we have shown here and elsewhere,
is theoretically false. Statistical evidence conflicts with its
predictions and finally, the draft programme is a living
example of its inadequacy.